Spending those billions – conclusion
Introduction
Last week I began looking at the capital expenditure of the central government comparing it with the rate of growth over a five year period. The conclusion was that despite the government having spent over US$800 million dollars over that period and more than US$1 billion over the last seven years, this expenditure has not been reflected in matching growth in the economy. One person commenting on that conclusion considered that I was ignoring the extent of the underground economy which is estimated to range between 30% and 60%. While there is merit in that criticism it is hard to fault anyone for using official statistics but more important is whether the substantial sums spent on capital expenditure by the government are for the benefit of those who under-declare their businesses’ performance and engage in tax evasion and money laundering or for those who struggle to survive in very challenging circumstances and yet try to abide by the laws and the rules.
I concluded last week with a commitment to look this week at the significant items in the capital expenditure budget for 2008 of G$40 billion dollars. Of that amount, four ministries account for $26.6 billion or 66% (See following table). Compared with the preceding year however this was approximately 0.16% over 2007 during which the official rate of inflation was close to 15%.
Table 1 – ($million)
2007 2008
Agency/Ministry Revised Budget
Office of the Prime Minister 3,003 5,053
Ministry of Finance 8,419 8,767
Ministry of Public Works and Communications 9,562 8,049
Ministry of Housing and Water 5,160 4,696
Total 26,144 26,565
Source: Estimates of the Public Sector, 2008
The Ministry of Finance itself does not within its own portfolio expend the capital expenditure it allocates itself but spends this in a number of areas. A more direct breakdown of the $8.8 billion it will spend in 2008 is as follows:
1. $4 billion to the Guyana Sugar Corporation;
2. $575 million providing for institutional strengthening and purchase of equipment under the IDB funded Fiscal and Financial Management Programme;
3. $998 million for support to community roads, drainage and irrigation projects; and
4. $674 million providing for poverty alleviation and community development projects.
Of the $8,049 million to be spent by the Ministry of Public Works and Communications:
1. A total of $6.2 billion has been budgeted for roads ($5 billion) and bridges ($1.2 billion) of which a substantial portion ($1.8 billion) is for ongoing expenditure on the New Amsterdam to Moleson Creek Road and $980 million budgeted to complete the access roads to the Berbice River Bridge and the rehabilitation of 54 bridges along the Timehri-Rosignol corridor;
2. $2.2 billion to continue construction, rehabilitation and maintenance of sea defence structures;
3. $395 million for the docking of ferry vessels and dredges, acquisition of spares, and rehabilitation of stellings and navigational aids;
4. $108 million is budgeted for the construction of two new airstrips at Wakenaam and Leguan and the rehabilitation of the Baramita Airstrip.
Operators in the domestic airline sector to whom I spoke claim not to have been consulted on this extravagantly unaffordable proposal for the two airstrips. Access to many of the established airstrips is only available at prohibitively expensive charter service affordable to only a few. Not only will these new airstrips be badly under-utilised but operating and maintenance will run into millions each year. This is what I have referred to as cost-added rather than value-added expenditure from which only government ministers are likely to benefit.
Security
Mainly security expenditure in the Central Government Budget falls under the Ministry of Home Affairs which includes the Police and the Guyana Defence Force. These are the capital expenditure allocated in the 2008 Budget:
Table 2 – ($million)
2007 2008
Agency/Ministry Revised Budget
Ministry of Home Affairs 1,048 1,334
Guyana Defence Force 153 699
Total 1,201 2,033
Source: Estimates of the Public Sector, 2008
Included in the capital expenditure budget for the Ministry of Home Affairs is an allocation of $660 million for the Citizens Security Programme and $430 million for the Guyana Police Force.
Despite having announced that the government would be spending some $900 million on acquiring equipment including two helicopters for the Army in 2008 the allocation is considerably less which can only mean that the government was planning to have Supplementary appropriation even as the Minister of Finance was delivering the 2008 Budget!
Social Sector
Table 3 – ($Million)
2007 2008
Agency/Ministry Revised Budget
Georgetown Public Hospital Corporation 35 137
Ministry of Health 2,486 2,765
Ministry of Labour, Human Services and
Social Security 1,297 372
Ministry of Education 2,799 2,280
Total 6,617 5,584
Source: Estimates of the Public Sector, 2008
The Ministry of Labour, Human Services and Social Security has the largest reduction from 2007 in the capital expenditure budget of all the ministries, departments, agencies or regions while education has also dropped by about 20% which may be due to a levelling off of programmes – the allocation to UG-Turkeyen fell by $360 million while the IDB-Funded BEAMS programme fell by $220M, primarily the School Performance Component (provision for numeracy and literacy programmes).
House lots instead of housing
Although substantial sums are to be spent via the Ministry of Housing and Water the allocation for housing ($1.5 billion) is mainly $850 million to provide infrastructure in low income settlement schemes and $420 million to complete roads, drains and structures in various areas. While the government has abandoned any attempt at providing any housing for the really vulnerable who cannot get a mortgage because for example they are either too old to work or simply cannot find jobs the number of new homes has risen substantially as a result of the house lots policy of the government since 1992.
Water gets $3.7 billion for projects which include the completion of two iron removal plants at Sophia and Central Ruimveldt ($500 million); upgrade of transmission and distribution lines ($331 million); completion of a treatment plant at No. 56 Village ($90 million); design and commencement of construction of three water treatment plants at Lima, Vergenoegen and Cotton Tree ($1 billion) and $58 million to improve water supply services to communities in the hinterland regions.
In agriculture an Agricultural Export Diversification Programme for US$20.9 million will be launched and for the privilege of hosting CARIFESTA for which Guyana was the only taker we will be forking out $300 million in the first instance while in electricity $220 million has been allocated for the purchase of a diesel electrification system for Port Kaituma, to construct distribution systems for Orealla and Siparuta and install solar panels in hinterland communities.
Depressed Communities
There is little in the 2008 Budget that can give any hope to some of our most depressed communities and even the billions that are being spent annually on roads and other infrastructure cannot be enjoyed by the large number of unemployed, pensioners and single parents – overwhelmingly women – who have no jobs to go to and who struggle daily to put some food on their children’s plates. In fact the lack of any attention in the Budget to women and the unemployed and depressed communities is particularly striking.
The major beneficiaries of the capital expenditure are a handful of contractors and suppliers many of whom provide extremely shoddy goods and services including construction of roads, bridges and the Conservancy and many of whom are themselves that group of self-employed that even the Guyana Revenue Authority complain so bitterly about. In fact by their performance and conduct they have raised the question whether the shift in the policy of contracting out ought not now to be revisited. With the margins by some contractors and suppliers being as high as 50%, the country will save tens of billions from having the work done by the government.
Many will consider this too radical but with the substantial savings it would be possible to employ better staff and pay better wages, reduce the level of corruption and still provide a better quality of work than is now obtained from some of our contractors.
Conclusion
When Dr Ashni Singh was appointed as Minister of Finance there was hope that the quality of budgeting, accounting and financial controls in the government would be improved and that the country would start receiving value for money. That hope has receded and it is now questionable whether he has the courage or the scope to change significantly the system of weak controls and largely tax-and-spend policy he has inherited, even if he was so inclined.
The way a government seeks to tax its people and how it spends the billions so derived best reflect its values, interests and policies.
It is clear that what we have had for close to two decades is a mindset that embraces IMF-style traditional growth rather than pro-poor policies, and which in practice is compromised by poor economic management and equally poor governance.
What would be very useful is for the opposition political parties or economists to come up with a new set of policies and build an alternative budget to reflect those policies.